Tax question - hiring my mom for childcare, and pay her with FSA money?

[Anonymous]

I'm doing it to avoid income taxes for myself, but I don't know about the SS credits, and I'll look into that. Our tax rate is pretty high (hhi of 240k) and we pinch pennies (student loans, old medical bills) so am just trying to see if this makes sense.

[Anonymous]

Your tax savings is $1500, less your time spent setting up an EIN, payroll taxes and unemployment tax. Your mom's earnings are $5000, less her share of payroll taxes, state and federal income taxes. Is this worth it?

We have a similar HHI and use the FSA, but we're paying a daycare--they handle all the taxes and administration.

You also want to think about if your elderly parent is physically able to watch your child 40 hours per week. That's a lot. What are your plans for if she gets sick?

[Anonymous]

Anonymous wrote:Your tax savings is $1500, less your time spent setting up an EIN, payroll taxes and unemployment tax. Your mom's earnings are $5000, less her share of payroll taxes, state and federal income taxes. Is this worth it?

We have a similar HHI and use the FSA, but we're paying a daycare--they handle all the taxes and administration.

You also want to think about if your elderly parent is physically able to watch your child 40 hours per week. That's a lot. What are your plans for if she gets sick?

Elderly? Yesterday there was a thread about people working their current jobs into their 70s. Many grandparents are in their late 50s, early 60s too.

[Anonymous]

Anonymous wrote:Hi there,
Does anyone have info on whether I can hire my mom for childcare, and pay her with FSA money? I know I'd have to pay social security on her, and she would have to claim it as income (not a problem, as she is a senior and has very little income). I assume this is a net benefit because I wouldn't pay income taxes (my AGI is 220K a year). Am I thinking about this right?

I'd also have to pay DC unemployment taxes, I know.

Anyone done this? Thanks for any thoughts.

Are you prepared to pay her minimum wage for all he hours she provides childcare? If she provided 40 hours a week, that would be over $20 k a year, of which both of you have to pay SS, which in total would exceed any tax savings from the FSA. Does she currently received SS? If so, if she exceeds the minimal income limit she will start to lose benefits.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Here is what I think based on my limited experience with Household employees (what the IRS calls nannies, house cleaners, etc...). First, The fact that she is your mother is irrelevant.

That is, like any other household employee, you have to:
- Get an EIN number from the IRS (simple IRS online request)
- Pay unemployment insurance to your state (the method is state dependent) and federal (done on your taxes at the end of the year) for any quarter your payments exceed 1K.
- Pay SS taxes for any year you exceed 1.8K (you are responsible for withholding her half of SS taxes and paying it with your taxes at the end of the year).
- Make sure you are paying minimum wage and time and half for overtime (I think DC Checks this information).
- Issue her W2 at the end of the year (can be done at the SS website using your EIN).

she have to:
- if the total are large enough that she will owe taxes to the state or federal, then she is responsible for paying estimated taxes during the year
- Finally, Your mother have to include all of this income in her tax filing (based on the W2 you provided).

As someone already mentioned you can gift up to 15k per year without tax ramifications but you can not use FSA money for that since your employer reports where that money goes and it will be considered income.

I suppose you can pay her up to 5K to get the tax benefit (and do all the above), then gift her the rest as a thank you for her support up to the gift tax limit. Is it legal? I do not know.

If this sounds overwhelming, pathetically I like the stuff and I do not mind if IRS comes knocking if I screwed up, then get a professional to help you.

In DC, you also need to get worker's comp insurance for household employers. And I didn't see withholding of federal and state taxes on here either.

Thank you. I did forget about the worker's comp insurance which can be done through your homeowner insurance. It is also required here in MD and probably most states. However; I think Household employers are not required to withhold federal and states taxes but they can to be helpful. Paying estimates taxes is ultimately her mother's responsibility.

[Anonymous]

Anonymous wrote:You need to just gift your mom money. Do not hire her as an employee. She watches your kids for free. You give her x dollars as a vhrismtas present.

This. The amount of extra money that you'd be required to pay your mom in employment taxes (it really adds up) might just negate the taxes you'd be saving with the FSA - which is only for the first $5,000 anyway. Do the math and then consider just gifting her money if she needs it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Your tax savings is $1500, less your time spent setting up an EIN, payroll taxes and unemployment tax. Your mom's earnings are $5000, less her share of payroll taxes, state and federal income taxes. Is this worth it?

We have a similar HHI and use the FSA, but we're paying a daycare--they handle all the taxes and administration.

You also want to think about if your elderly parent is physically able to watch your child 40 hours per week. That's a lot. What are your plans for if she gets sick?

Elderly? Yesterday there was a thread about people working their current jobs into their 70s. Many grandparents are in their late 50s, early 60s too.

I though OP mentioned her mother was on some sort of government retirement. Maybe I misread, but that would make the OP's mother at least 65. Thus elderly.

Being of counsel in a law firm in your 60s and 70s is a lot less strenuous than providing FT childcare. Chasing a toddler is exhausting.